I will unearth and identify any strategic issues or options that currently face the company exampling an array of different equines theoretical tools to critically evaluate their usefulness for Amazon’s us access. The History of Amazon & Achievements to Date Amazon was first founded in 1 995 by Jeff Bozos and officially launched in the month of July where they sold its first book: Fluid Concepts and Creative Analogies (Douglas Hovercrafts, 1995).
After a success of rapid growth selling books online to customers, Amazon launched the company in 1997 as a public offering on the NASDAQ stock exchange and floated the stock at $18. 00 per share. Today, in 2014, Amazon prides itself on having an expansible range of products targeting just about any person and industry. Their financial figures for the financial year of 2013 reports Net Sales of $74 Billion Dollars and a Net income of $274 Million Dollars.
A single share will cost a potential investor of Amazon: $405. 63 (Amazon Inc, 1996-2013). How Amazon’s Interface looked in 1997 How Amazon Look’s in 2014, employing over 132,000 Nationwide Porters Generic Strategies To start my investigation and ascertain the business strategies used for Amazon, it is sensible for me to start by choosing a generic tool like “Porters Generic Strategies” because this will give me a broad scope of Amazon in identifying the sheer magnitude of the corporation.
Michael Porter (1998) argues that, “a firm’s strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. ” (M.
Porter, 1998) Appendix A – Example of Porter Generic Strategies Matrix Michael Porter’s 1 998 book, “Competitive Strategy’ guides us on the thought processes and methods to use this theoretical tool so we can try and narrow own Amazon Inc with a particular business strategy/ strategies they may employ. Before getting into the unity-gritty details, it’s wise to define the three core business strategies a company may adopt using Porters Generic Strategies. Cost Leadership Strategy The cost leadership market targets a broad market.
They are able to produce/source goods or services within an industry that a certain level of quality is assured. They can either sell their goods at average industry prices to earn profits higher than their rivals or in contrast, sell below the average industry standard to gain market share. Their rich diversity of products supports the business strategy that they are able to make gains in the market by ceasing activities and in contrast; for fill their profit margin in other markets by keeping prices at the industry standard level.
Michael Porter (1998) outlines further cost leadership strategy traits by saying “Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions. ” (M. Porter, 1998) Companies that possess this strategy often display these internal trenches: A Large amount of Capital required to specifically investing in productive assets. They may possess efficient production and distribution processes. Excellent efficiency distribution network.
High level of skills involving: engineering, manufacturing and assembly processes. Differentiation Strategy A differentiation strategy is a development Of products and or services that attain specific attributes which are valued by customers and those customers perceive the range as either better, different or a mixture of both – providing them with a unique selling point of sale. Michael Porter (1998) extends this function to add, “A company can add value to the product/ service by charging a premium , in the view that a higher price covers extra costs that made it different or unique from the competition. (M. Porter, 1 998) Companies that possess a differentiation strategy often display these internal strengths: They pride themselves on innovative quality. They may possess efficient production and distribution processes. Access to pioneering scientific research. High level of skills involving product development. A market contender or leader for sales and the ability to convey their product/ services. Focus Strategy A focus strategy targets a narrow segment to either achieve a cost advantage or differentiation.
They possess the trait that the needs of a group can be entirely focused on. They would excel at and entrench customer loyalty within their firm which may discourage their competitors to compete. Moreover, with the achievement of loyalty, brings permeation of this mentality throughout the organizations staff and in turn, it can award the customer’s allegiance to that firm. Michael Porter (1998) warns companies employing a predominantly focused strategy, saying “Some risks of focus strategies include imitation and changes in the target segments. (M.
Porter, 1998) Companies who have a focus strategy as their core business characteristic tend to have less bargaining power with their suppliers because the volumes produced are far lower comparable to either a differentiation style or most certainly a cost leadership style. From the three defining business strategies that Michael Porter (1998) outlines, can make an educated assumption that Amazon possesses most of the qualities referring to a cost leadership business strategy but also tiptoe into a differentiation strategy from specific products or industries. A.
Oliver (2011), supports my pinion saying “Amazon’s Strategy, of offering its customers premium products at non premium Prices. Jeff Bozos deploys an Integrated Cost Leadership ‘Differentiation Strategy. Amazon is offering kindles at low prices with product differentiation. ” (A. Oliver, 2011). Amazon SOOT Analysis Strengths Weaknesses Economies of scope Sold at zero or negative margins Strategic acquisitions Received negative publicity Efficient distribution chains and logistics Only online presence Superior quality services and products Cost leadership strategy Opportunities The reads Economies of scale to impact different countries
Strategic alliances could be formed to recapture Industries Bricks & Mortar physical presence New legislation against tax avoidance Release more its own branded products and Services Court Cases may Increase Increase services and product portfolio through acquisitions Online security (Payments, Hackers, System Compromisers) Online payment system Appendix B -? Albert Humphreys (1960), SOOT Analysis applied for Amazon Moving forward following the method steps employed by Michael Porter, have now conducted a SOOT analysis (Appendix B) by listing and defining the strengths, weaknesses, opportunities and threats of Amazon.
Strengths Economies of Scope. Economies of scope are the reserve funds that originate from delivering two or more products (or giving administrations) at less cost than creating every separately utilizing the same sources and technology. Amazon encounters economies of scope by utilizing its better IT aptitudes than offer the biggest scope of items online (as opposed to offering fewer items). It likewise utilities abundance server limit (which initially were fabricated to backing online marketplace) to give distributed computing administrations. Strategic Acquisitions.
Amazon has been effectively procuring new firms to ring the new items, administrations, capacities, resources and aptitudes to the business. Because of these vital acquisitions Amazon is presently equipped for offering cloud administrations, has created its data administration (IM) and client relationship administration (CRM) abilities. Efficient distribution chains and logistics. Amazon has various satisfaction distribution centers in each One business sector it works. The distribution centers are topographically spread in each one nation so the products could be dispatched speedier and with lower cost.
The firm commands a “big edge” when it comes to logistics. Superior quality services and products. It conveys just the best quality administrations and items. It is dependable, advantageous, offers one of the most minimal and speediest transportation, the least value, a lot of people free extra gimmicks with its administrations and has the amplest determination of merchandise. Amazon seeks to exploit profit pools within value networks. Cost Leadership Strategy. The objective of cost leadership strategy is to create items and administrations with a lower cost than the contenders do.
The ways to attain this technique are the economies of scale. For Amazon to succeed with the cost leadership strategy it needs to give the broadest scope of items to attain the economies of scale and profit from the low expenses of showing those items on its online commercial centre. In a come about, the business turned into the biggest online retailer on the planet. Sold at zero or negative margins. Most businesses and investors would shudder to even contemplate selling products at zero or below cost price, but Amazon do this to ensure they push the competition out of the market and maximize market share.
This works in the short term, but can impact Amazon badly in the long term. The vision of Amazon to look at the long term is continually fermented by Jeff Bozos because without this, the dream bursts. Received negative publicity. Amazon has as of late pulled in much negative attention because of its duty evasion in the nations (UK and US) where it acquires the majority of its incomes. Amazon is likewise censured for poor distribution centre conditions for laborers, hostile to focused activities, value segregation and so forth. Only online presence. Amazon lacks physical presence such as supermarkets.
Many people still like to purchase by tangibility. Economies of Scale to impact different countries. To maintain current development levels, Amazon could Open its online marketplaces in other huge and developing economies, for example, Africa and parts of Asia. Bricks & Mortar physical presence. The business could secure some physical vicinity in the businesses it works. Littler store-distribution centre (like Argosy stores) outlets could serve as stockrooms, dissemination focuses, the stores where clients could get their buys and physical contact focuses (like Ebay have begun to do).
Amazon’s brand mindfulness would be fundamentally move forward. Release own branded products and services. With a right to gain entrance to such potential industries, Amazon could profit by discharging a greater amount of its own branded items and thus stretch capabilities. Increase services and Product Portfolio through Acquisitions. The organization has officially acquired numerous organizations to effectively broaden its products and services offering. Online Payment System. Amazon could amplify its present installments framework and AC unit the administration comparative with Papal.
Amazon ‘s installment framework would be of extraordinary utilization for mobile purchasers who as a rule buy on the go and think that it hard to give ann. subtle elements or other individual data that is obliged when obtaining the item. Furthermore, such administration could be utilized by numerous other online retailers for a little expense. Strategic Alliances could be formed to recapture industries. In spite of the fact that Amazon is a gigantic commerce juggernaut and can’t be effectively surpassed by small competitors, it confronts genuine difficulties from vital organizations together.
For instance, the alliance of Apple and eBooks content suppliers permitted the substance suppliers to request that Amazon would offer eBooks for higher cost or that they will offer their eBooks through Apple store only. Without the vital union, content suppliers were not able to contend with Amazon’s bargaining force. New legislation against tax avoidance. There are becoming concerns over how enormous multinationals are, for example; Amazon, abstain from paying expenses for the nations they work in.
Inevitably, governments will pass an enactment obliging that all organizations would pay a decent amount of taxes. For this situation, Amazon’s profits would be affected significantly. Court Cases may increase. The business has officially pulled in much negative consideration from UK and U. S. Governments for tax evasion and is subject for prosecutions and fines. Claims are expensive and devour time. Online Security (payments, hackers, system compromisers). Amazon stores its online customers’ bank details and personal information, which is a focus for online frauds and hacking.
The more online clients Amazon has, the more comparable a target the firm becomes. Porters Five Forces Model This tool was created by Harvard Business School professor, Michael Porter, to analyses the attractiveness and likely-profitability of an industry. Since publication, it has become one of the most important business strategy tools. The classic article which introduces it is “How Competitive Forces Shape Strategy” in Harvard Business Review 57, (March – April 1 979, pages 86-93) Appendix C – Example of Porters Five Forces Model Appendix C shows an example of Porters Five Forces Model.
I have identified factors relating to Amazon using this model and will combine this with the SOOT analysis produced earlier, to compare the viable strategic options of Amazon. Michael Porter (1998) emphasizes to usefulness of the tool by eying “it helps understanding both the strength of the current competitive position and factors affecting the strategy development. ” (M. Porter, 1998) Supplier Power Suppliers consider Amazon as an important and prestigious company hence, their commitment with Amazon is clearly noticeable and essential.
The company has a vast network Of suppliers which means switching costs are low and the suppliers could integrate and champion the innovation of products to rival competitors. This is a strategic option of theirs which they could wield if companies don’t play ball “the Amazon way’. Amazon uses report-level core competencies in developing its current and new product offerings. An example of this is a new product they announced this month called Amazon Silk. Buyer Power Low prices are the principal attraction that Amazon offers to each individual buyer.
Buyer power is low because Amazon offers consistently low prices, fast/ free delivery – backed by efficient logistical networks and they have a returns policy that is second to none. Vertical forward integration is used by Amazon to purchase or control their distributors in the form of business partnerships. Switching costs for wide spread business partners (who also tangentially act as Amazons competitors) can be very high, so people use the Amazon platform because it targets their consumers without negating high operational costs or undue competitive threats by Amazon.
Competitive Rivalry Amazon has tried to offset competition and rivalry by encouraging all businesses to sell their products by partnering. This gives Amazon forward integration to control, even large companies such as: Waterfronts Or Boarder use Amazon. The degree of rivalry is suppressed because each individual or company is working with the firm towards the common goal – selling products. The company wouldn’t jeopardize friction by working alongside a competitor of a similar size using these strategies and the exit barriers for all companies and individuals involved are relatively low.
There are high levels of differentiation in a predominantly cost leadership strategists company because the firm aids the facility to sell millions of products spanning thousands of industries – meaning, low direct competitive rivalries. Threat of Us absolution In years gone by Amazon have introduced products that have superseded or substituted products that consumers previous bought and this has resulted in increased threats from their competitors. Amazon could achieve this by utilizing its years of expertise in technology, by forming dynamic capabilities to innovate competitive products ATA cost effective price.
They singularly targeted the consumer and assured their loyalty by buying their products through a slick branded and easily recognizable retailer. In the short term they possess little substitution threats, best- in-class benchmarking s on the American Customer Satisfaction Index, (2014) (Please view online Appendix D) however, in the long term they may become substituted. Threat of New Entry The threat to a new entry coming against Amazon would not come in the form of a small or even medium sized business. It wouldn’t even matter if they had a unique or generic business strategy.
The problem is they are too small in every sense. They simply wouldn’t survive after crippling economies Of scale/ high fixed costs. If a competitor had a successful product, the smaller company would be out thought in every sense, backed by huge sums of investment in technologies and external operational activities. If a specific product was successful that Amazon had spotted within a profit pool, it has he potential to be duplicated or offered cheaper by Amazons significantly strengthened logistical and supplier value networks.
There is however, an ever potential threat of a consortium of medium/large sized companies collaborating to risk mitigate and offset potential risk by forming an external capability development to either enter or recapture a specific market. Large competitors such as Backbone and Youths have an intertwined mixture of strategies and industries that overlap, although these companies are younger than Amazon and less experienced, they do however have large financial backing to pave their way ahead of the competition.
Appendix E – Shows Porter Generic Strategies and Industry Forces The table above shows each generic strategy and the industry forces to define the business strategy or strategies that drive Amazon. From the strategic options highlighted above, I can conclude that my assumptions on page 5 match my findings. Amazon’s competitive advantage is “inside out” internal capabilities to a combination of strategic strategies being for most; a cost leadership style mixed with elements of Related Diversification Multi-product Strategy.
Michael Porter (1998) supports this summary by saying “a single generic tragedy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price. ” (M. Porter, 1998) To further cement that a cost leadership and differentiation are the freedom ant strategies employed by Amazon have conducted a scoring system out of 10 for each industry force relating to a generic strategy.
The total generic strategy score is out of 50 and gives me quantifiable reflection to the distinction of Amazon. Industry Force Generic Strategy Cost Leadership Differentiation Focus Entry Barriers 9 Buyer Power 7 10 Threats of Substitutes 5 Total 39 13 Appendix F – Shows my conclusions of Porters Five Forces for Amazon Conclusions After I simplified the process Of the investigation and choose a broad theoretical tool (Porters generic strategies) it gave me a conclusive overview of the business strategies used by the firm.
If was to be critical, didn’t find the SOOT analysis much use. James Becker (2012) criticisms the SOOT by saying, “If the exercise doesn’t focus on anything in particular, answers can wander all over the place” James Becker, 2012). The data I collected wasn’t unidentifiable and I found myself making sweeping statements. It was only until incorporated Porters Five Forces, I understood Amazon properly. Unfortunately, the tool couldn’t identify whether the firm was a resource- based view strategy or if there were only distinct tangible/ intangible capabilities.